Reliance Jio has expressed difficulty in providing an undertaking to the government to settle RCom’s dues till it is protected from RCom’s past liabilities by a bank guarantee. Such an undertaking is mandatory under spectrum trading norms before the government accords final approval for RCom’s asset sale to Reliance Jio.
Just over a year ago, India’s richest man Mukesh Ambani offered a bailout option for younger brother Anil Ambani’s beleaguered company Reliance Communications Ltd, signing a deal in which Reliance Jio Infocom Ltd would buy the latter’s telecom assets that would potentially save it from insolvency. Today, the picture is starkly different and perhaps more complicated.
The proposed sale of RCom’s spectrum assets, announced in December 2017 and initially expected to be cleared by March 2018, is in limbo.
In the absence of this undertaking, the department of telecommunications (DoT) has refused to issue a no-objection certificate for the RCom-Jio deal.
“It is totally up to the two companies now to figure a way out. DoT is not going to look at options for them. If Jio doesn’t give the undertaking, the government will not clear the deal,” a senior DoT official said requesting anonymity.
RCom’s ability to repay its lenders hinges on the Jio deal, especially with operational creditor Ericsson repeatedly taking RCom to court and asking it to detain Anil Ambani unless the payment is made.
But equally important for Jio is the fact that it currently shares spectrum with the company, especially in the premium 800 MHz band, ideal for 4G services.
“Since RCom will cease to be a wireless operator, DoT’s only recourse is to ask Jio to provide an undertaking for any liabilities that may arise. If the deal fails, RCom’s spectrum will end up back with the government which will auction it and Jio will have to bid for it. Rival operators will bid for it too. Jio will end up paying a higher price for the same asset. But for Jio too, it is difficult to give an undertaking without a definitive idea of the size of the past dues that could arise,” a telecom lawyer said requesting anonymity.
Meanwhile, Reliance Jio has extended the term of the definitive agreement for buying specified assets of RCom and its affiliates to 28 June 2019, Jio’s parent Reliance Industries Ltd said in an exchange filing on 31 December.
“Right now, both parties need to sit together and try to figure out the extent of the past unknown liabilities and how much Jio needs to be protected. Some business risk will have to be taken by Jio also. Right now, it is a commercial disconnect between the two brothers and if RCom can satisfy Jio, then the deal goes through. If not, RCom will have to go through the entire NCLT route again,” Saurav Kumar, partner, IndusLaw, said.
The Supreme Court too on Monday asked the brothers to jointly resolve the issue. “Sit down and resolve this between yourselves, it is not for us. Till you don’t resolve between yourself, we can’t do anything,” Justice R.F. Nariman said.
RCom has completed the sale of its media convergence nodes and related infrastructure assets worth ₹2,000 crore, besides selling fibre worth ₹ 3,000 crore to Reliance Jio. However, the spectrum sale is still stuck as it has not received DoT’s approval.